The concept of RWA (Real World Assets) has been discussed in recent months. Major institutions have laid out their plans in this field, believing that it is time to enter the market and expressing long-term optimism. For example, at the beginning of this year, Goldman Sachs' digital asset platform was officially launched, and helped the European Investment Bank to issue a two-year digital bond of 100 million euros; subsequently, electrical engineering giant Siemens also issued a 60 million euro digital bond on the blockchain for the first time; Binance released a 34-page in-depth research report on RWA in March this year; Citibank is even more vigorously advocating, pointing out in the report that almost anything of value can be tokenized, and the tokenization of financial and real-world assets may be the "killer application" for blockchain to achieve breakthroughs, predicting that by 2030, there will be 4 trillion to 5 trillion US dollars of tokenized digital securities.
It can be seen that the RWA track is enough to become a focus of attention this year. This article will explain and analyze the relevant content of the RWA track, and take stock of the ecological projects worthy of attention, and share potential speculative opportunities with you.
What is RWA
RWA is the tokenization or NFTization of real assets, which can put real estate, bonds, stocks and other assets in the real world on the chain. Owning a token means that you have ownership of the item in the real world, and you can make loans, leases, sales and other transactions on the chain. In fact, this concept has already had successful cases of RWA in the currency circle. Our commonly used stablecoins USDT, USDC, etc., are the tokenization of the real asset of the US dollar.
The impact and advantages of RWA+DeFi
The core impact of RWA on DeFi is to connect traditional finance and crypto finance: RWA brings off-chain financial assets to the chain, and RWA tokens can redeem offline assets, opening up the channel between real assets and DeFi. In this way, the sustainability of crypto finance can be achieved by increasing DeFi externalities and improving the liquidity of various assets.
Break the closed system and inject more gameplay and possibilities into DeFi. Currently, DeFi is a relatively closed environment, and the income comes from endogenous systems, such as transaction fees, lending fees, staking income, and inflation income. RWA can make the underlying assets more diverse, and any possible items in real life, so innovative gameplay will also appear in crypto finance.
Expand DeFi income and provide players with continuous motivation: As the yields of various DeFi protocols decrease and market uncertainty increases, DeFi investors increasingly need a diversified portfolio of real-world assets to obtain stable returns that are not related to cryptocurrencies. For example, U.S. Treasury bonds have a 5% yield, high returns and low risks, and are the preferred investment targets for a large number of investors after last year's bear market. Through RWA, investors can enter the traditional off-chain market, make free investment choices, and obtain diversified portfolio returns.
The commercial value and potential of RWA tokenization in DeFi have been recognized, attracting major institutions to make layouts and capital to enter the market. Traditional financial institutions hold a large number of real assets, such as real estate, stocks, bonds, etc., but the ownership and transactions of these assets usually need to be certified and supervised by intermediaries, which requires a lot of time and cost. The use of RWA can bring higher liquidity and value to enterprises by reducing the need for intermediaries, automating processes and increasing liquidity, thereby increasing profits and competitiveness.
RWA Project Review
At present, according to the nature of assets and the different tokenization methods, RWA can be divided into stablecoins, private credits, stocks and bonds, real estate, carbon credit certificates, metals, etc. Let's take stock of several very promising RWA projects:
1. Centrifuge Private Credit
Centrifuge was launched in 2017 and is the first project to do RWA on MakerDAO. It is an on-chain ecosystem for structured credit, focusing on securitizing and tokenizing previously illiquid debt. It aims to help central enterprises raise funds with lower thresholds while allowing investors to earn income from real assets.
Centrifuge basically simulates the process of corporate credit in traditional finance, but uses DeFi+NFT to eliminate the participation of some intermediaries and the cumbersome processes off-chain. The financing process on Centrifuge can be roughly summarized as follows: the borrower packages and uploads his real assets off-chain, generates a legally effective NFT for mortgage, and obtains interest-bearing ERC 20 tokens. Investors can use DAI to purchase these interest-bearing ERC20 tokens; the sponsor obtains financing and redeems it after maturity, and investors obtain income. The fund pool generated by the interest-bearing ERC20 token is also divided into primary and advanced types. The primary fund pool has high returns for investors but higher risks, while the advanced fund pool has relatively lower returns and risks.
According to the official website, Centrifuge has raised more than $385 million, and its TVL has doubled compared to last year. Its tokenized assets have been integrated into the entire DeFi, including $220 million in risk-weighted assets on MakerDAO.
2. Ondo Finance Public Bonds
Ondo Finance is a DeFi protocol founded by Nathan Allman, a former member of the Goldman Sachs digital asset team, and Pinku Surana, a former vice president of the Goldman Sachs technology team. It has currently received US$34 million in investment from well-known institutions such as Pantera Capital, Coinbase Ventures, Tiger Global, and Wintermute.
It is understood that Ondo Finance is a large, highly liquid ETF managed by asset management giants such as BlackRock and Pacific Investment Management Company (PIMCO). It has launched four tokenized funds: U.S. Money Market Fund (OMMF), U.S. Treasury Bonds (OUSG), Short-Term Bonds (OSTB), and High-Yield Bonds (OHYG). The average yield of these four funds can reach about 6%. However, for compliance reasons, Ondo Finance will adopt a whitelist system. Investors need to pass KYC and AML screening before signing subscription documents. They can use stablecoins or U.S. dollar trading fund tokens and use these fund tokens in licensed DeFi protocols. Ondo Finance will charge an annual management fee of 0.15%.
3. MakerDAO bonds and stablecoins
MakerDAO is an open-source decentralized autonomous organization created on the Ethereum blockchain in 2014. Anyone holding its token MKR can participate in project governance. In addition, MakerDAO issues the stablecoin DAI and supports and stabilizes the value of DAI through mechanisms such as a dynamic system of collateralized debt positions.
MakerDAO issued the world's first real-asset loan based on DeFi, and laid out the RWA track early. In 2020, MakerDAO officially included RWA as a strategic priority and released guidelines and plans for the introduction of RWA. In addition to issuing the stablecoin DAI, MakerDAO passed a proposal to use RWA as collateral in the form of tokenized real estate, invoices, and accounts receivable to expand the issuance of DAI.
In 2022, MakerDAO also launched a $220 million fund with BlockTower Credit to finance real-world assets. MakerDAO's RWA business is worth more than $680 million, of which $500 million of RWA collateral is U.S. Treasury bonds. In addition, Societe Generale borrowed $7 million from MakerDAO, and its position is backed by 40 million euros worth of AAA bonds as OFH tokens. It is reported that about 70% of MakerDAO's revenue in December 2022 came from RWA.
MakerDAO is definitely an early entrant in RWA, but the concept of RWA has received a mediocre response before, and it has not been innovative and has been tepid. It was not until the scale of DeFi rebounded in 2023 and other traditional giants entered the market that RWA returned to the field of vision and received a wave of attention. MakerDAO, which laid the groundwork early, certainly has more experience, including previous cooperation, support for DAI's economic value, and successful experience in issuing tokens, so the market generally has high expectations and optimism for MakerDAO.
4. RealT Real Estate
RealT is a company that tokenizes off-chain assets and is one of the pioneers in asset tokenization. It mainly tokenizes real estate in the United States. RealT can solve the liquidity and transaction cost problems of real estate assets by tokenizing real estate. For example, real estate that originally needed to be sold by set can be sold in fragments, allowing ordinary investors to participate in the investment in the form of holding partial ownership. For example, investors who find it difficult to directly invest in U.S. real estate using traditional methods can now directly invest in U.S. real estate.
When an investor buys its token RealToken, he is equivalent to investing in a real estate asset and will receive a certificate proving that he owns this asset. Even if RealT goes bankrupt or disappears for some reason, RealToken will still be valid and the interests of RealToken holders will not be harmed. Therefore, the value and effectiveness of RealToken itself are not affected by RealT.
Moreover, RealT will use IPFS technology to permanently save these files that prove the validity of RealToken assets. Once these files are stored in IPFS, they will be permanent and will not be tampered with, and there is no need to rely on third-party institutions to save these files. In addition to uploading these files proving assets to IPFS, data and information on housing inspections, insurance, property taxes, etc. will also be uploaded to the IPFS system one after another. These data and files will provide real, objective, and verifiable information about the real estate they describe, record all transaction history of this real estate, and can easily verify its authenticity.
When the asset proof and data are stored securely, the next data to be stored is the house price. RealT will introduce an oracle so that it can obtain real assessment data about real estate directly from the market without going through a third-party agency, so as to reflect the price of real estate as objectively and truthfully as possible. To achieve complete openness and transparency of real estate data, the assessment of real estate value must also be completely open and transparent.
The total value of global real estate is currently approximately 360 trillion US dollars. For such a huge market, we are looking forward to its activation and innovation of DeFi after RWA.
5. Galileo protocol open source infrastructure
Galileo Protocol is a platform for the tokenization and redemption of physical assets, an open source infrastructure for executing smart contracts. It allows the creation of "pNFTs" representing physical goods, issued on multiple chains and able to interact with any blockchain.
Through the Galileo platform, users can diversify their crypto portfolios into physical assets and obtain illiquid assets. Moreover, Galileo can also guarantee that the physical assets pNFTs associated with them are authentic and do not contain fakes. Because pNFTs are QRC20 standard tokens, they can achieve interoperability on all major chains, provide storage of these assets, source tracking and other information, thereby avoiding counterfeiting and fraud.
LEOX is the native token of Galileo. Users will play four different stakeholder roles: The Owner, The Buyer, The Redeemer, and The fractional investor.
In Galileo, if you are a seller, you can generate an NFT to prove that you are the owner of the real asset. As a buyer, you can directly purchase the real asset you want. After the purchase, the seller will send the NFT to the buyer, and then become the new official owner of the real asset. If you are a partial investor, you may only purchase a part of the real asset. For example, real estate, this asset of great value will be fragmented, so there may be multiple partial investors investing in the real estate asset. If you are a redeemer, you can directly redeem the asset and take possession of it.
Can RWA achieve great success?
In 2023, the RWA narrative has received a wave of attention, and some institutions have also invested in the construction of the RWA field. However, the field is still in its early stages of development and is relatively small in scale. To a certain extent, it needs to rely on various DeFi protocols, especially oracles, which has in fact always been an imperfect infrastructure. Finally, there is the issue of RWA compliance. These builders in the RWA field are constantly struggling with regulations, determined to connect Web3 with the real world.
Currently, there is no leading RWA project, but driven by the huge market demand and the wave of on-chain and off-chain financial connections, we must pay attention to this field, and the time will come sooner or later. I also believe that the projects in this article can stand out and drive the entire track, making DeFi more active and interesting, and giving investors more investment opportunities.